FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997.
0R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________.
COMMISSION FILE NUMBER 1-644
------
COLGATE-PALMOLIVE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-1815595
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 PARK AVENUE, NEW YORK, NEW YORK 10022
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 310-2000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGES
- -------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date:
Class Shares Outstanding Date
------------------------ ------------------ ---------------------
Common, $1.00 par value 147,593,213 April 30, 1997
Total number of sequentially numbered pages in this filing, including exhibits
thereto: .
PART I. FINANCIAL INFORMATION
- ------- ---------------------
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------
MARCH 31,
--------------------
1997 1996
-------- --------
Net sales $2,147.1 $2,053.7
Cost of sales 1,066.5 1,050.4
-------- --------
Gross profit 1,080.6 1,003.3
-------- --------
Selling, general and administrative
expenses 774.1 733.8
Interest expense 57.6 56.4
Interest income 11.9 9.3
-------- --------
819.8 780.9
-------- --------
Income before income taxes 260.8 222.4
Provision for income taxes 91.2 78.9
-------- --------
Net income $ 169.6 $ 143.5
======== ========
Earnings per common share*:
Primary: $ .56 $ .47
======== ========
Assuming full dilution: $ .52 $ .44
======== ========
Dividends declared per common share**: $ .51 $ .47
======== ========
* All share and per share amounts have been restated to reflect the April 25,
1997 two-for-one stock split. See Note 4 to the Condensed Consolidated
Financial Statements.
** Includes two dividend declarations in both periods.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
ASSETS
------
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
Current Assets:
Cash and cash equivalents $ 167.3 $ 248.2
Marketable securities 48.1 59.6
Receivables (less allowance of
$37.1 and $33.8) 1,106.8 1,064.4
Inventories 799.8 770.7
Other current assets 247.3 229.4
-------- --------
2,369.3 2,372.3
-------- --------
Property, Plant and Equipment:
Cost 3,774.2 3,830.8
Less: Accumulated depreciation 1,374.3 1,401.9
-------- --------
2,399.9 2,428.9
-------- --------
Goodwill and other intangible assets
(net of accumulated amortization of
$409.2 and $387.0) 2,671.1 2,720.4
Other assets 392.6 379.9
-------- --------
$7,832.9 $7,901.5
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
Current Liabilities:
Notes and loans payable $ 218.1 $ 172.3
Current portion of long-term debt 159.6 110.4
Accounts payable 698.9 751.7
Accrued income taxes 141.2 93.1
Other accruals 826.9 776.8
--------- ---------
2,044.7 1,904.3
--------- ---------
Long-term debt 2,614.7 2,786.8
Deferred income taxes 238.3 234.3
Other liabilities 917.1 942.0
Shareholders' Equity:
Preferred stock 390.8 392.7
Common stock 366.4 366.4
Additional paid-in capital 934.0 918.4
Retained earnings 2,749.7 2,731.0
Cumulative foreign currency
translation adjustments (550.9) (534.7)
--------- ---------
3,890.0 3,873.8
Unearned compensation (375.1) (370.9)
Treasury stock, at cost (1,496.8) (1,468.8)
--------- ---------
2,018.1 2,034.1
--------- ---------
$ 7,832.9 $ 7,901.5
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------
MARCH 31,
-------------------
1997 1996
------- -------
OPERATING ACTIVITIES:
- ---------------------
Net cash provided by operating
activities $ 155.0 $ 175.0
------- -------
INVESTING ACTIVITIES:
- ---------------------
Capital expenditures (89.0) (107.4)
Payments for acquisitions, net of cash
acquired (10.3) (17.3)
Proceeds from sale of marketable
securities and other investments,
net of purchases 32.9 (2.4)
Other, net (5.7) (21.4)
------- -------
Net cash used for investing
activities (72.1) (148.5)
------- -------
FINANCING ACTIVITIES:
- ---------------------
Principal payments on debt (104.1) (7.3)
Proceeds from issuance of debt, net 39.4 39.2
Dividends paid (69.7) (69.0)
Purchase of common stock (44.7) -
Other, net 18.0 9.9
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Net cash used for financing activities (161.1) (27.2)
------- -------
Effect of exchange rate changes on
cash and cash equivalents (2.7) (1.2)
------- -------
Net decrease in cash and cash
equivalents (80.9) (1.9)
Cash and cash equivalents at beginning
of period 248.2 208.8
------- -------
Cash and cash equivalents at end of
period $ 167.3 $ 206.9
======= =======
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. The condensed consolidated financial statements reflect all normal recurring
adjustments which, in management's opinion, are necessary for a fair
presentation of the results for interim periods. Results of operations for
the three months ended March 31, 1997 and 1996 may not be representative of
results to be expected for a full year.
2. Provision for certain expenses, including income taxes, media advertising,
consumer promotion and new product introductory costs, are based on full year
assumptions. Such expenses are charged to operations in the year incurred
and are included in the accompanying condensed consolidated financial
statements in proportion with the passage of time or with estimated annual
tax rates or annual sales.
3. Inventories by major classes were as follows:
March 31, December 31,
1997 1996
--------- ------------
Raw materials and supplies $288.3 $311.5
Work-in-process 31.7 34.3
Finished goods 479.8 424.9
------ ------
$799.8 $770.7
====== ======
4. On March 6, 1997, the Company's Board of Directors approved a two-for-one
common stock split effected in the form of a 100% stock dividend. As a
result of the split, shareholders will receive one additional share of common
stock for each share they held as of April 25, 1997, to be distributed May
15, 1997. Par value will remain $1 per share. Accordingly, all share and
per share amounts contained in the Condensed Consolidated Financial
Statements and Exhibits have been restated to give effect to the stock split.
5. Primary earnings per share are determined by dividing net income, after
deducting dividends on preferred stock, net of related tax benefits, by the
weighted average number of common shares outstanding. Fully diluted earnings
per common share are calculated assuming the conversion of all potentially
dilutive securities, including convertible preferred stock and outstanding
options. This calculation also assumes reduction of available income by pro
forma Employee Stock Ownership Plan replacement funding, net of income taxes.
In February 1997, the Financial Accounting Standards Board issued Statement,
"Earnings per Share", ("SFAS No. 128") which simplifies the computation of
earnings per share. Under SFAS No. 128, basic and diluted earnings per share
will replace primary and fully diluted earnings per share, respectively. The
Company will adopt the provisions of SFAS No. 128 effective December 31,
1997, and restate all prior periods. The effect of adoption will not have any
affect on the Company's financial condition, results of operations or cash
flows.
Earnings per share (basic and diluted) as determined by SFAS No. 128 would
not be different than earnings per share (primary and assuming full dilution)
as included herein for all periods presented.
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
6. The Company acquired the worldwide Kolynos oral care business in January
1995. As described in the Company's Form 8-K filed on March 21, 1997, and
set forth under the caption "Outlook" in Part II, Item 7 and in Note 16 to
the Company's consolidated financial statements included in its 1996 Annual
Report on Form 10-K, the acquisition was approved by antitrust regulatory
authorities in Brazil subject to certain conditions. Among other things,
those conditions involve undertakings which result in the substitution by the
Company of a new toothpaste brand for Kolynos in Brazil for four years and
the Company contract manufacturing toothpaste in Brazil for third parties
during this period. Toothbrushes, mouthwash and dental floss sold under the
Kolynos brand name in Brazil will continue during this four year period.
7. Reference is made to the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year 1996 for a complete set of
financial notes including the Company's significant accounting policies.
7
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
- ---------------------
Worldwide net sales reached $2,147.1 in the first quarter of 1997, a 5% increase
over the 1996 first quarter. Unit volume was up 6% with all worldwide operating
divisions contributing to the volume increase. First quarter sales in the Oral,
Personal and Household Care segment were $1,920.7, up 3% from 1996.
Colgate-Asia/Africa net sales, excluding divested businesses, increased 3% to
$420.7 on volume gains of 4%. Contributing to this region's growth were strong
advances in China, India and Australia which were partially offset by an
economic slowdown in the Philippines and Thailand.
Colgate-Europe sales decreased 6% to $492.6 primarily reflecting the negative
effects of weaker European currencies. Volume increased 2% encompassing gains
in Poland, Russia, Austria, Germany and the United Kingdom while France and
Italy were affected by economic downturn.
Colgate-Latin America net sales increased 10% to $537.2 on volume increase of
8%. Widespread growth occurred throughout the region with major contributions
from Mexico, Brazil, Colombia, Argentina, Ecuador and the Caribbean countries.
Expansion of new products such as Colgate Total Fresh Stripe and Colgate Baking
Soda toothpastes and Ajax bleach contributed to the region's growth, and robust
market shares reflect the success of these new product initiatives.
Colgate-North America net sales grew 7% to $470.2 on volume gains of 8%. New
product introductions, such as Colgate Baking Soda & Peroxide Whitening
toothpaste and Colgate Wave toothbrush, and the continued strength from the 1996
introductions of Irish Spring Sport and Soft Soap Body Wash contributed to the
growth.
Net sales in the Pet Nutrition segment increased 23% to $226.4 on volume gains
of 19%. This growth was primarily driven by benefits from the strategic shift
to an in-house sales force from outside distributors. As such, prior year trade
inventory reductions contributed to the 1997 volume gains.
Worldwide gross profit margin for the first quarter of 1997 increased to 50.3%
from 48.9%. Most divisions are benefiting from streamlined manufacturing, new
higher margin product launches and other cost reduction programs.
Selling, general and administrative expenses in the first quarter of 1997
increased as a percentage of sales to 36.1% from 35.7% in the prior year. The
higher levels of expense includes increased advertising partially offset by
lower administrative and other expenses.
8
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Earnings before interest and taxes (EBIT) increased 13.7% to $306.5, which
reflects the first quarter sales growth and improved gross profit margin.
Interest expense, net of interest income, was $45.7 in the 1997 first quarter as
compared with $47.1 in 1996 as a result of slightly lower debt levels.
The effective tax rate for the quarter was 35.0% in 1997 and 35.5% in 1996. The
lower rate in 1996 reflects continued benefits from the Company's tax planning
strategies.
First quarter 1997 net income was $169.6 or $.56 per share compared with $143.5
or $.47 per share in the prior year.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations was $155.0 in the 1997 first quarter compared
with $175.0 in the 1996 first quarter. The decrease was due to the higher usage
of working capital during the quarter. During the first quarter of 1997, the
Company repurchased $44.7 of common shares in the open market and repaid $64.7
of debt. At March 31, 1997, $434.7 of commercial paper was classified as long-
term debt in accordance with the Company's intent and ability to refinance these
obligations on a long-term basis.
Reference should be made to the Company's 1996 Annual Report on Form 10-K for
additional information regarding available sources of liquidity and capital.
9
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
Reference is made to the caption "Outlook" in Part II, Item 7, Note 16
to the consolidated financial statements on pages 10 and 37 of the
registrant's Annual Report on Form 10-K for the year ended December
31, 1996 and to the Company's report on Form 8-K dated March 21, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit 11 Computation of Earnings per Common Share.
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K dated March 21, 1997 was filed by the
Company reporting the completion of the approval process for its
previously announced purchase of Kolynos oral care business by
Brazilian antitrust authorities and the entering into of
undertakings with Brazilian antitrust authorities relating to
previously reported plans on how the Company will operate the
acquired business in Brazil over the next several years.
The exhibits indicated above which are not included with the Form 10-Q are
available upon request and payment of a reasonable fee approximating the
registrant's cost of providing and mailing the exhibits. Inquiries should be
directed to:
Colgate-Palmolive Company
Office of the Secretary (10-Q Exhibits)
300 Park Avenue
New York, NY 10022-7499
10
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLGATE-PALMOLIVE COMPANY
-------------------------
(Registrant)
Principal Accounting Officer:
May 14, 1997 /s/ Stephen C. Patrick
---------------------------------
Stephen C. Patrick
Chief Financial Officer
11
EXHIBIT 11
----------
PAGE 1 OF 2
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------ ------
PRIMARY
EARNINGS:
Net income $169.6 $143.5
Deduct: Dividends on preferred shares,
net of income taxes 5.4 5.4
------ ------
Net income applicable to common shares $164.2 $138.1
====== ======
SHARES (IN MILLIONS):
Weighted average shares outstanding 294.6 292.1
====== ======
EARNINGS PER COMMON SHARE, PRIMARY $ .56 $ .47
====== ======
All share and per share amounts have been restated to reflect the April 25, 1997
two-for-one stock split. See Note 4 to the Condensed Consolidated Financial
Statements.
12
EXHIBIT 11
----------
PAGE 2 OF 2
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------ ------
ASSUMING FULL DILUTION
EARNINGS:
Net income $169.6 $143.5
Deduct: Dividends on preferred shares .1 .1
Deduct: Replacement funding resulting
from assumed conversion of Series B
Convertible Preference Stock, net
of tax .6 1.2
------ ------
Net income applicable to common shares $168.9 $142.2
====== ======
SHARES (IN MILLIONS):
Weighted average number of common
shares outstanding 294.6 292.1
Add: Assumed exercise of options
reduced by the number of shares
which could have been purchased
with the proceeds from the exercise
of such options 6.1 4.9
Add: Assumed conversion of Series B
convertible Preference Stock 23.3 23.9
------ ------
Weighted average number of common
shares outstanding, as adjusted 324.0 320.9
====== ======
EARNINGS PER COMMON SHARE, ASSUMING
FULL DILUTION $ .52 $ .44
====== ======
All share and per share amounts have been restated to reflect the April 25, 1997
two-for-one stock split. See Note 4 to the Condensed Consolidated Financial
Statements.
13
EXHIBIT 12
----------
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1997
------------------
Income before income taxes $260.8
ADD:
Interest on indebtedness and
amortization of debt expense and
discount or premium 57.6
Portion of rents representative of
interest factor 7.8
Interest on ESOP debt, net of dividends 0.6
LESS:
Income of less than fifty-percent-owned (1.6)
subsidiaries ------
Income as adjusted $325.2
======
FIXED CHARGES:
Interest on indebtedness and
amortization of debt expense and
discount or premium $ 57.6
Portion of rents representative of
interest factor 7.8
Interest on ESOP debt, net of dividends 0.6
Capitalized interest 1.9
------
Total fixed charges $ 67.9
======
Ratio of earnings to fixed charges 4.8
======
In June 1989, the Company's leveraged employee stock ownership plan (ESOP)
issued $410.0 of long-term notes due through 2009 bearing an average interest
rate of 8.6%. These notes are guaranteed by the Company. Interest incurred on
the ESOP's notes during the first quarter of 1997 was $8.3. This interest is
funded through preferred and common stock dividends. The fixed charges
presented above include interest on ESOP indebtedness to the extent it is not
funded through preferred and common stock dividends.
14
5
1,000,000
3-MOS
DEC-31-1996
JAN-01-1997
MAR-31-1997
167
48
1,144
37
800
247
3,774
1,374
7,833
2,045
2,615
0
391
366
1,261
7,833
2,147
2,147
1,066
774
0
0
46
261
91
170
0
0
0
170
.56
.52
